Healthcare Choice WITHOUT Affordability is No Choice

Americans need choice in health care. How many times have you heard this catchy sentence? Probably so often that you are beginning to think it is true, right? I invite you to think about healthcare choice and ask yourself “what does increased healthcare choice really mean?” Does it pertain to ALL Americans, or just some of us? Is healthcare choice taken away from employees when an employer defines what health insurance plans they will get and pays for most of the health insurance premium costs? Does the sentence mean increased choice in (1) the number of health insurance plans, (2) increased choice in insurance plan types, (3) the freedom to choose whether one wants to buy health insurance or not, (4) increased choice in doctors, or (5) increased choice in the types of health care services we want to include in health insurance coverage (e.g., acupuncture, plastic surgery, the most expensive medications)?

Politicians’ Healthcare Agendas At Work

Americans are lazy thinkers and we are easily led to make the connection between “healthcare choice” and “healthcare affordability”.  We hear Americans need choice in health care and immediately turn off our brains before understanding what this statement actually means to us. This laziness lets politicians lead us down a path that serves moneyed special interest groups over us and manipulates public opinion. Americans have become sheep and are paying for it financially and socially.

healthcare choice and lazy thinking

Politicians use Americans’ nebulous desire for healthcare choice to sell all kinds of political healthcare agendas. For example, our present Republican politicians in office want us to make the leap from “less healthcare choice” translates to “higher health insurance premium costs” (i.e., decreased healthcare affordability) which in turn is the reason that “Obamacare has failed”.   Quite a stretch in reasoning… but, then again, politicians are known for not letting logical arguments get in the way of their agendas. Republicans want us to believe that the large health insurance premium rate increases in many Exchange marketplaces are a direct result of having fewer health insurance plan choices.  There are many reasons that health insurance premiums increase at double digit rates and vary from location to location. All of the reasons have to do with the structure of our private for-profit healthcare system in the United States and not because of Obamacare (PPACA).

To forward their healthcare agendas, politicians do not want Americans to know that healthcare choice always comes at a price and that price must be paid by someone.  For example, polls show that the majority of Americans want the right to choose between different health insurance plans, but how many would change their answers if the pollster rephrased the question to “do you want a choice of many health insurance plans if it means you will pay higher insurance premiums and/or cost-share?”

The Fallacy of Healthcare Choice

Let’s look at healthcare choice from an affordability standpoint. Because the vast majority of Americans pay for healthcare services and products indirectly through an insurance company, I will look at the difference between having one health insurance plan choice and many.

To illustrate (see the figure below), I will divide our country into two parts: one where one health insurance plan choice exists (“single payer healthcare”) and one where many health insurance plans choices exist (our present healthcare system). Medicare already functions like a single payer system which is why it is sometimes called “Medicare for All”.  For this discussion about healthcare choice and healthcare affordability, I am not going to elaborate on the details surrounding single payer healthcare.

 

healthcare choice single payer versus present systemWe will assume that the two parts have identical populations and risk pool compositions (i.e., one part is as healthy as the other part). We will further assume that all health insurance plans must provide Essential Health Benefits (EHBs)  with a minimum actuarial value of 60% so that we are comparing apples-to-apples. We can assume that the comparison is for all residents in each side or we can assume that we are only talking about a particular group like the non-group  (all individuals who do not get their health insurance through employers or government programs) or Medicare beneficiaries. The analysis below is the same in all cases.

Where do you think the lowest health insurance premiums (and the lowest healthcare prices) will be—in the single payer (western) healthcare environment or in the many healthcare choices (eastern) environment? Let me give you some clues.

The most obvious difference between the two healthcare systems has to do with administrative costs. When the healthcare system is single payer (one health insurance choice), administrative costs (like billing, claims servicing, information technology, etc) are consolidated and made more efficient. Under the single payer system (green in figure above), health insurance premiums will be lower because of decreased administrative costs.

For Americans with private health insurance, the prices we pay for healthcare services are set through negotiation between health insurance companies and the various healthcare businesses that provide services. In any given location, healthcare service prices are individually determined by the relative negotiating power of the health insurance plan and every healthcare business it contracts with. When a insurance plan brings a large number of potential customers (called the risk pool size) to the bargaining table and healthcare business choice is plentiful, then the insurance company can demand lower prices. When the reverse is true, the healthcare businesses supplying services can demand higher prices. This is the reason that the uninsured must pay the highest prices for healthcare services and single payer healthcare would pay the lowest prices. In our present healthcare system (many health insurance plan choices), healthcare businesses (insurance companies included) fight the loss of relative negotiating power by consolidating their businesses so that local monopolistic conditions favor them.

Where many health insurance plan choices exist, insurance premiums are set according to local conditions and will be higher in locations where (1) population density is low, (2) the population health is locally poorer than the average, (3) the cost of living is high, and (4) doctors must be enticed to practice there with more money because a scarcity of doctors allows them to go to more “desirable” locations. Miami does not have a shortage of doctors while many rural, poor areas do, These premium increasing conditions are unrelated to healthcare choice and the government cannot “create” competition in these locations to bring down costs. Insurance companies will not enter (or stay in) markets where they are not assured a reasonable profit.   In our present healthcare system (with many health insurance plan choices), individual insurance companies often demand incentives ( “extra taxpayer money”) to continue offering their services in lower profit locations (rural areas).

Summary–Healthcare Choice Without Affordability is NO Choice

It should be obvious to you by now that health insurance premiums will be lower where one health insurance plan covers the largest group of Americans possible. Healthcare choice through many health insurance plans does NOT reduce health insurance premiums and therefore does NOT increase healthcare affordability.

The next time you hear the politician’s one-line statement “Americans need choice in health care” make an effort to think past it and ask what does this actually mean, where does it lead, and who will actually benefit from it (usually not the individual American). I have summarized the analysis above in the figure below. Americans need choice in health care actually results in higher health insurance premiums because prices for healthcare services are higher (lower affordability. If Americans cannot afford healthcare, they cannot get healthcare. Choice becomes NO choice for many.

healthcare choice logical conclusion

 

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